The Hindu Business Line : Selective credit control

The Commerce Minister has talked about the strongest possible measures against hoarders and profiteers. Stock controls on essential commodities are being imposed. But there is a need to undertake supportive credit-control measures. It stands to reason and common sense that bank credit should not facilitate the violation of stock limits.

In the heyday of selective credit control in the 1970s and 1980s, there was close coordination between the RBI and the Government. Thus, the minimum margins for cotton advances were related to the stock limits prescribed by the Textile Commissioner.

In the mid-1970s, there was a severe edible oils shortage. Imports were allowed by the Government under the free licensing procedure to increase supplies. To ensure that edible oils imported with bank credit were released to the market without much delay while giving reasonable time to traders, special provisions were made in SCC.

As a result, the crisis was resolved soon. In the past, SCC took the form of a minimum margin on advances, minimum rate of interest and level of credit. The first restriction alone could achieve the objective of preventing the hoarding of commodities with the help of bank credit.

Of course, it will not by itself solve the problem of inflation for which other monetary and fiscal measures are required. It is time the RBI moves in the matter without loss of time, especially now that the wheat marketing season has started.

A. Seshan e-mail

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